Collective Defined Contribution (CDC) schemes could increase retirement incomes for UK savers by up to 60 per cent compared with annuities, while offering more secure lifetime income, according to Hymans Robertson.
The paper, published ahead of the next phase of CDC regulation, highlights strong member and employer support for innovative pension models that pool investment and longevity risks.
According to the paper, there is a strong appetite among pension savers for schemes that improve retirement outcomes, with 80 per cent willing to trade flexibility for higher income and protection against running out of money.
The report shows that 91 per cent of UK corporate pension decision-makers are likely to consider CDC or similar models, up from 81 per cent in 2024.
Hymans notes that employers value schemes that stand out, deliver higher member income from the same contributions, provide longevity protection and reduce the decision-making burden on members.
Additionally, the Hymans Robertson modelling shows that a 40-year-old entering a whole-of-life CDC scheme could achieve retirement income up to 60 per cent higher than through annuity purchase and 30 per cent higher than typical drawdown strategies.
The paper also says that joining a decumulation-only CDC after conventional DC accumulation could increase retirement income by 25–50 per cent relative to standard options. It notes that a 10,000-employee firm transitioning from DC to CDC with a 5 per cent to 7 per cent contribution structure could boost member pensions by around 13 per cent annually while also reducing pension costs by £3.5 million per year.
It outlines three CDC designs, including whole-of-life single-employer, whole-of-life multi-employer, and decumulation-only schemes. Hymans notes that all models pool investment and longevity risk, provide secure inflation-linked income and may include dependants’ pensions and death benefits. It also highlights the Royal Mail CDC as the UK’s first single-employer example in practice.
The paper also sets out the expected timetable for multi-employer CDC schemes, with design starting mid-2025, regulations expected late 2025, provider assessment in 2026, authorisation in early 2027 and the first schemes launching by mid-2027.
Hymans Robertson head of DC markets Paul Waters says: “CDC is not just a technical innovation, it’s a meaningful opportunity to improve retirement outcomes for millions of people across the UK. CDC schemes deliver pensions in a way that improves adequacy and the analysis published in our latest report reinforces that view. Support for CDC is not just from members but from employers too. There is a clear appetite for change. Members are pragmatic, they understand that CDC involves trade-offs, such as occasional income fluctuations or generational differences, but they are willing to accept these if it means a more secure retirement income. Employers are increasingly open to risk-sharing models, recognising that CDC can offer better outcomes without placing undue burden on their organisations.
“One type of CDC scheme will not be right for every employer, which is why we are advocating for a diverse ecosystem of CDC designs, including whole of life, decumulation only, single-employer, multi-employer and sector-based schemes. That diversity will be essential to making CDC scalable, inclusive and adaptable to different needs. The Government’s support of multi-employer CDC is a welcome step, but it must be followed by commitment and clear leadership. Government backing, whether through promotion or direct provision, would significantly boost confidence in CDC among savers. We urge the industry to prioritise CDC as part of a broader strategy to tackle pension inadequacy.
“Ultimately, CDC is about strengthening the social contract between generations. It’s about giving people a better chance of a decent retirement while ensuring the system remains fair and resilient, this can be done through thoughtful design, transparent communication and collaborative delivery. Now is the time to move from discussion to delivery, CDC must be prioritised in tackling pension inadequacy across the UK. If we get this right, CDC could become a cornerstone of UK pension provision for decades to come.”